Saturday, 29 March 2014

The US economy showed some signs of recovering from a winter slowdown on Friday. Consumer spending rose 0.3 percent in February, up from a 0.2 percent increase in January. Income also rose 0.3 percent last month, the same as in January.

However, another report on Friday showed that the Thomson Reuters/University of Michigan's consumer sentiment index fell to 80.0 in March from 81.6 in February.

Meanwhile, the euro area's recovery looks likely to continue. A report from the European Commission on Friday showed that its economic sentiment indicator for the region rose to 102.4 in March, the highest reading since July 2011, from 101.2 in February.

Elsewhere in Europe, the UK confirmed on Friday that its economy grew 0.7 percent in the fourth quarter. However, a high current account deficit and a fall in household income raised concerns over the sustainability of the growth rate.

Friday, 28 March 2014

The latest US GDP revision released on Thursday showed that the economy grew at an annual rate of 2.6 percent in the fourth quarter, up from 2.4 percent in the previous estimate.

The upward revision was mainly due to consumer spending growth being revised up to a 3.3 percent rate, the fastest in three years, from 2.6 percent.

Providing additional good news for the US economy, another report on Thursday showed that initial claims for state unemployment benefits dropped 10,000 to 311,000 last week, the lowest level since November, pushing the four-week average to its lowest level in six months.

Not so positive was a report from the National Association of Realtors showing that pending home sales fell 0.8 percent in February to its lowest level since October 2011.

Elsewhere, a rebound in consumer spending looks set to drive UK economic growth again in the first quarter. A report on Thursday showed that retail sales jumped 1.7 percent in February after falling 2.0 percent in January while a report on Friday from GfK showed that its UK consumer confidence index rose to -5 this month, its highest reading since August 2007, from -7 in February.

Consumer spending, though, experienced a setback in Japan last month. A report on Friday showed that household spending fell 2.5 percent in February from a year earlier. It had increased 1.1 percent in January.

More encouragingly, another report on Friday showed that Japan's unemployment rate fell to 3.6 percent in February from 3.7 percent in January. The jobs-to-applicants ratio rose to 1.05, the highest since August 2007, from 1.04.

Nevertheless, data for March suggest an acceleration in US economic growth. A flash reading of Markit's March composite PMI showed a rise to 55.8 from 54.1 in February after the services index rose to 55.5 from 53.3, more than offsetting a decline in the manufacturing index.

However, the new orders index fell to 54.6 in March, the lowest since October, from 56.6 last month.

In the UK, consumer price inflation fell to 1.7 percent in February, the lowest since October 2009. However, house prices rose 6.8 percent in January from a year ago, the biggest annual increase since August 2010.

Tuesday, 25 March 2014

The Chicago Federal Reserve's national activity index rose to +0.14 in February from -0.45 in January. However, the three-month moving average of the index fell to -0.18, its first reading below zero in six months, from +0.02 in January.

Markit's flash reading of the eurozone composite index showed a fall to 53.2 in March from 53.3 in February. The service sector index fell to 52.4 in March from 52.6 in February while the manufacturing PMI fell to 53.0 from 53.2.

Monday, 24 March 2014

[S]ome on Wall Street are wondering if we’re about to replay some version of that ’90s mix tape. Liz Ann Sonders of Schwab (SCHW) and Ed Yardeni of Yardeni Research have been discussing this theme of late with clients.

“The global economic scene is increasingly reminiscent of the 1990s, when the U.S. economy and stocks outperformed relative to the rest of the world,” wrote Yardeni last week. “Back then, emerging markets submerged when the Asian Tigers were hit by a currency crisis in 1997 and Russia defaulted on its debt in 1998.”

“Today,” he adds, “the high-tech revolution that started in the 1990s is spreading to lots of other industries that are using technology to innovate and to boost productivity. Once again, the U.S. seems to be leading the way. Emerging markets are submerging again. Europe’s recovery is lackluster. … Commodity prices are flat-lining.”

In her March 17 note—“Objects in the Rear View Mirror May Appear Closer Than They Are: A Look Back at the 1990s”—Sonders tallies the many similarities between then and now, including extremely easy monetary policy transitioning to some semblance of normalcy; persistently low inflation; a major developing-market deleveraging (Japan then vs. the euro zone today); rising interest in stocks and partisan gridlock in Washington.

However, Farzad also notes some differences between conditions then and now.

There are, of course, major differences between today’s backdrop and that of the early-to-mid 1990s. Never has the Fed thrown so much stimulus at an economic slowdown, the 2008-09 likes of which was more painful than anything seen since the 1930s. Today’s profit margins are unusually fat. Income inequality is worse. The giddy 1990s, moreover, set us up for the triple trauma of the following decade: the tech crash, Sept. 11, and then the housing collapse and Wall Street’s near-death experience. So, says Sonders, it stands to reason that a thrice-bitten skepticism stands in the way of a full 1990s redux.

I would add that the 1990s was a period of growing global labour surplus, which helped boost corporate profit margins as well as kept inflation low, allowing central banks to maintain monetary conditions that were favourable for financial markets.

Initial claims for unemployment insurance rose to 320,000 last week from 315,000 the prior week but the four-week average declined to 327,000, the lowest level since late November, from 330,500 the week before.

The Conference Board's index of leading indicators rose 0.5 percent in February, the biggest gain since November, after rising 0.1 percent the prior month.

The Philadelphia Federal Reserve's factory index rose to 9.0 this month from minus 6.3 in February.

One negative, though, was in housing. Existing home sales fell 0.4 percent in February, pulling the sales rate down to the lowest since July 2012.

The generally positive US economic data was enough to push the S&P 500 up 0.6 percent on Thursday even as emerging markets, copper and crude oil fell.

At its monetary policy meeting on Wednesday, the Fed decided to cut its monthly purchases of US Treasuries and mortgage-backed securities to $55 billion from $65 billion.

Forecasts released by the Fed showed that the majority of Fed policymakers expect its benchmark rate to rise in 2015. However, at a press conference after the meeting on Wednesday, Yellen said that rates will stay lower than normal “for some time” even after the economy recovers.

Meanwhile, in Japan, Bank of Japan Governor Haruhiko Kuroda said in a speech at a Tokyo symposium on Wednesday that the economy is on track to meet the central bank's 2 percent inflation target as planned.

A report on Wednesday had shown that Japan's trade deficit eased in February as exports rose 9.8 percent from a year earlier following a 9.5 percent increase in January. Imports grew 9.0 percent after surging 25.1 percent the previous month.

Wednesday, 19 March 2014

Growth in home prices in China slowed in February, according to data published by the National Bureau of Statistics on Tuesday. Prices rose in 57 of the 70 cities tracked by the government, down from 62 in January.

Prices in Beijing and Shenzhen rose 0.2 percent in February, the slowest pace since October 2012. Prices rose 0.4 percent in Shanghai, the smallest increase since November 2012.

Compared to a year earlier, calculations by Reuters show that average new home prices in China's 70 major cities rose 8.7 percent in February, slowing from the 9.6 percent rise in January.

In the US, housing took a small step in recovering from its own downturn during the winter in February. Housing starts fell 0.2 percent in February, the third consecutive decline. Encouragingly, however, building permits jumped 7.7 percent, indicating a likely recovery in construction soon.

Meanwhile, US inflation remained muted in February. Consumer prices rose 0.1 percent last month, pushing the 12-month increase down to 1.1 percent, the smallest since October.

Economic data from the United States last week were mixed. Retail sales rose 0.3 percent in February but after having fallen 0.6 percent in January. Also, a preliminary reading of the Thomson Reuters/University of Michigan index of consumer sentiment showed a decline to 79.9 in March from 81.6 in February.

In the euro area, a report last week showed that industrial production fell 0.2 percent in January after having fallen 0.4 percent in December.

Economic data from China showed that the economy has slowed. Industrial production rose 8.6 percent in the first two months of the year compared with the same period a year earlier, the weakest start to a year since 2009. Retail sales rose 11.8 percent, the slowest pace for the period since 2004. Fixed-asset investment increased 17.9 percent, the smallest in 13 years for the first two months.

Also weighing on investors' minds were developments in Crimea.

On Sunday, a referendum was held in Crimea to decide whether the region would break with Ukraine and join Russia. With three quarters of the votes counted, Reuters reports that 96 percent had voted in favour of the move.

This result is likely to raise tension between Russia and the West, which could in turn lead to further anxiety in financial markets.

Saturday, 15 March 2014

The S&P 500 fell 0.3 percent, extending a weekly slide to 2 percent, the largest weekly drop since January. This left the index down 0.4 percent for the year so far.

Markets were not helped by weak economic data on Friday.

In the US, the preliminary reading of the Thomson Reuters/University of Michigan index of consumer sentiment came out at 79.9 in March, down from 81.6 in February.

Another report showed that the producer price index fell 0.1 percent in February after a 0.2 percent increase in January.

In the UK, the trade deficit widened in January as goods exports fell 4 percent to their lowest level since June 2012.

Construction output rose 1.8 percent in January though after having fallen 0.2 percent in the fourth quarter.

While the recent decline in stocks have been attributed mostly to the tension in Ukraine and concerns over weaker economic growth, it has also been presaged by some relatively heavy selling by corporate insiders in the US recently.

Mark Hulbert reports that in recent weeks, corporate officers and directors have sold an average of six shares of their company’s stock for every one that they bought. That is more than double the average ratio since 1990.

The two prior occasions when the ratio got almost as high as today were in early 2007 and early 2011. Both were followed by steep falls in the stock market.

Retail sales rose 0.3 percent in February, suggesting that the economy is recovering after a winter slowdown. However, January retail sales were revised to show a bigger-than-initially-reported fall of 0.6 percent.

Encouragingly, another report showed that initial claims for unemployment benefits fell by 9,000 last week to 315,000, the lowest in more than three months.

Thursday, 13 March 2014

Japan's economic outlook brightened somewhat after a report on Thursday showed that core machinery orders rose 13.4 percent in January, the fastest pace in almost a year. Orders had fallen 15.7 percent in December.

Economic data from Japan on Wednesday had been mixed though.

Big Japanese manufacturers grew more optimistic about business conditions in the January-March quarter as a government report on Wednesday showed that the business survey index rose to plus 12.5 from plus 9.7 in the previous quarter. However, the index for the April-June quarter showed a fall to minus 9.4.

Wednesday, 12 March 2014

“Japan's economy has continued to recover moderately, and a front-loaded increase in demand prior to the consumption tax hike has been observed,” the BoJ said in a statement.

Elsewhere, economic data on Tuesday were mostly positive.

In Germany, exports rose 2.2 percent in January while imports jumped 4.1 percent.

In the UK, manufacturing production rose 0.4 percent in January. However, overall industrial output rose only 0.1 percent, dragged down by a 5.8 percent fall in oil and gas extraction due to bad weather.

Tuesday, 11 March 2014

Fourth quarter growth was revised down to 0.2 percent from 0.3 percent in the initial estimate as capital spending and private consumption both grew slower than previously estimated.

Slower growth could continue as exports struggle at the start of 2014. Another report on Monday showed that despite a weaker yen, Japanese exports rose 16.7 percent in January from a year earlier, much slower than a 30.3 percent annual increase in imports.

As a result, Japan's current account deficit widened to a record 1.589 trillion yen in January.

Also on Monday, a report from the Cabinet Office's economy watchers survey showed that its current conditions index fell to 53.0 in February from 54.7 in January.

The future conditions index plunged to 40.0 in February from 49.0 in January, its third consecutive decline.

Elsewhere in Asia, the People's Bank of China reported on Monday that China's banks extended 644.5 billion yuan in new loans in February. While up 24.5 billion yuan from the same month last year, it was half the 1.3 trillion yuan in January.

Total social financing, a broader measure of credit, was 938.7 billion yuan in February, down 131.8 billion yuan from the same month last year.

Monday, 10 March 2014

On Saturday, the General Administration of Customs reported that China's exports fell 18.1 percent in February from a year ago. Imports rose 10.1 percent.

The Lunar New Year may have affected the trade performance as exports were brought forward. However, even for January and February combined, exports fell 1.6 percent as imports rose 10.0 percent.

Indeed, on Sunday, the National Bureau of Statistics reported that the inflation rate fell to 2.0 percent in February from 2.5 percent in January, with food prices going up by only 2.7 percent despite the Lunar New Year.

Saturday, 8 March 2014

What’s different this year is that some of the forecasters who’ve been most realistic about how long it would take to recover are now predicting better days in 2014...

Their argument? The fiscal drag is easing. Households have deleveraged. The worries about contagion from a euro explosion have eased. Job growth seems solid. Consumers are buying houses and cars again. And businesses are planning to invest more to expand their productive capacity.

Indeed, Friday brought evidence that the US economy is picking itself up from the winter doldrums.

Job growth accelerated in February. The economy added 175,000 jobs last month after having added 129,000 in January. Nevertheless, the unemployment rate rose to 6.7 percent in February from 6.6 percent in January.

Friday, 7 March 2014

There was no change in monetary policy from the European Central Bank after its monetary policy meeting on Thursday. From Bloomberg:

European Central Bank President Mario Draghi signaled that deflation risks in the euro region are easing for now after new forecasts showed that inflation will approach their target by the end of 2016.

“The news that has come out since the last monetary policy meeting are by and large on the positive side,” he told reporters in Frankfurt today after the central bank kept its main interest rate at 0.25 percent. He also indicated that money markets are under control at the moment, lessening the need for emergency liquidity measures.

However, another report on Thursday showed that new orders for manufactured goods in the US fell 0.7 percent in January.

Still, the Federal Reserve appears likely to proceed with its plan to wind down its bond purchases. From Reuters:

The U.S. economic outlook would have to change dramatically for the Federal Reserve to alter the pace at which it is winding down its massive bond-buying program, three top U.S. central bankers said on Thursday.

And one, Atlanta Fed President Dennis Lockhart, told Reuters in an interview that even a third month of below-par U.S. jobs growth would not be enough to warrant such a move.

Thursday, 6 March 2014

The head of the Bank for International Settlements said on Wednesday that central banks should return to more normal monetary policy. Reuters reports:

Central banks should “stay the course of normalisation” and should not be distracted by the “bumpiness associated with this adjustment” Jaime Caruana, head of the BIS said in a speech in Frankfurt, home to the European Central Bank.

“They should not be overly concerned by occasional disinflationary pressures - these are often a result of structural change on the supply side,” Caruana said.

This call comes even as Reza Moghadam, Ranjit Teja, and Pelin Berkmen -- officials at the International Monetary Fund -- post that the European Central Bank should consider additional monetary easing.

The ECB must be sure that policies are equal to the tasks of reversing the downward drift in inflation and forestalling the risk of a slide into deflation. It should thus consider further cuts in the policy rate and, more importantly, look for ways to substantially increase its balance sheet, be it through targeted LTROs or quantitative easing (public and private asset purchases).

Still, eurozone retail sales rebounded 1.6 percent in January after having fallen 1.3 percent in December, and Markit's composite PMI for the region rose to 53.3 in February from 52.9 in January as the services PMI rose to 52.6, the highest since June 2011, from 51.6 in January.

Elsewhere in Europe, the UK services PMI slipped to 58.2 in February from 58.3 in January but maintained expansion for the 14th month.

In addition, a report from ADP showed that private employment increased by just 139,000 last month while the increase for January was revised down to 127,000 from 175,000.

Slower US growth was blamed by the Federal Reserve on the weather. In its Beige Book released on Wednesday, the Fed described the economy's expansion in recent weeks as “modest to moderate”, with bad weather causing a “slight” decline in activity in two of 12 districts.

Among economic data on Tuesday, Japan reported that total labour cash earnings fell 0.2 percent in January from a year ago while in the UK, the Markit/CIPS construction PMI fell to 62.6 in February from 64.6, its highest level since August 2007, in January.

Other US economic reports showed that consumer spending rose 0.4 percent in January while construction spending rose 0.1 percent.

It was a similar story in the UK. The Markit/CIPS manufacturing PMI rose to 56.9 in February from 56.6 in January while mortgage approvals rose to 76,947 in January from 72,798 in December.

In China, the HSBC/Markit manufacturing PMI fell to 48.5 in February, the weakest reading in seven months, from 49.5 in January. However, the February figure was better than the preliminary reading of 48.3.

Monday, 3 March 2014

Stocks pulled back in the latter part of the trading session on Friday though as tensions rose in Ukraine.

Investors are likely to continue to focus on the Ukraine at the start of this week after developments over the weekend. From Reuters:

Ukraine mobilized for war on Sunday and Washington threatened to isolate Russia economically after President Vladimir Putin declared he had the right to invade his neighbor in Moscow's biggest confrontation with the West since the Cold War.

“This is not a threat: this is actually the declaration of war to my country,” Ukrainian Prime Minister Arseny Yatseniuk said in English. Yatsenuik heads a pro-Western government that took power in the former Soviet republic when its Moscow-backed president, Viktor Yanukovich, was ousted last week.

Putin secured permission from his parliament on Saturday to use military force to protect Russian citizens in Ukraine and told U.S. President Barack Obama he had the right to defend Russian interests and nationals, spurning Western pleas not to intervene.

Economic data over the weekend were also not positive for markets.

China's National Bureau of Statistics reported on Saturday that its manufacturing PMI fell to an eight-month low of 50.2 in February from 50.5 in January.

Saturday, 1 March 2014

In the US, fourth quarter growth was revised down to a 2.4 percent annual rate from the initial estimate of 3.2 percent.

However, the Institute for Supply Management-Chicago business barometer rose to 59.8 in February from 59.6 in January, the Thomson Reuters/University of Michigan consumer sentiment index rose to 81.6 from 81.2 and pending home sales eked out a 0.1 percent rise in January after a 5.8 percent fall the previous month.

In the euro area, the inflation rate was unchanged at 0.8 percent in February while the unemployment rate was unchanged at 12.0 percent in January.

In Japan, the Markit/JMMA manufacturing PMI fell to 55.5 in February from an eight-year high of 56.6 in January when industrial output rose 4.0 percent. A survey by the Ministry of Economy, Trade and Industry showed that manufacturers expect output to rise another 1.3 percent in February but fall 3.2 percent in March.

Other data from Japan on Friday showed that the inflation rate was unchanged at 1.3 percent in January, the jobless rate was unchanged at 3.7 percent in January and household spending rose 1.1 percent in January from the previous year, accelerating from a 0.7 percent increase in December.